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CIRCULATING  COPY_ 

* AGRICULTURE  LIBRARY. 

uinIVERSITY  OF  ILLINOIS 


Agricultural  Experiment  Station 


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CIRCULAR  No.  177 


THE  RELATION  BETWEEN  YIELDS  AND  PRICES 

By  E.  Davenport 


URBANA,  ILLINOIS,  OCTOBER,  1914 
AfiiSmTUtt  LlfeftAJtY 

FEB  2 8 1990 


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UNIVERSITY  OF  ILLINOIS 


The  State  Bankers  Association  has  furnished  the  Experiment  Station,  thru 
the  different  banks,  with  a list  of  names  of  progressive  farmers  of  the  state, 
and  has  asked  that  publications  of  special  interest  be  sent  to  their  addresses 
from  time  to  time.  Responsive  to  this  request  this  circular  is  issued  and  is 
being  sent  not  only  to  the  names  furnished  by  the  Bankers  Association  but 
also  to  the  regular  mailing  list  of  the  Experiment  Station.  If  parties  to  whom 
this  circular  is  sent  care  to  receive  the  regular  publications  of  the  Experiment 
Station  and  will  notify  the  Director  to  that  effect,  their  names  will  be  added 
to  the  regular  mailing  list. 

This  circular  is  issued  to  call  attention  to  certain  financial  aspects  fre- 
quently overlooked  in  discussions  pertaining  to  an  improved  agriculture.  It  is 
designed  to  be  studied  rather  than  hastily  read. 


THE  RELATION  BETWEEN  YIELDS  ANI)  PRICES 

By  E.  Davenport,  Director 
Introduction 

The  following  points  are  generally  assumed  without  argument  by 
writers  and  speakers  discussing  agriculture: 

1.  That  large  yields  are  always  profitable  and  'that  the  best 
farmer  is  the  one  who  raises  the  most  per  acre. 

2.  That  large  yields  are  a natural  antidote  for  the  high  cost 
of  living. 

3.  That  when  prices  are  low  the  farmer  should  raise  his  yields 
to  protect  his  income. 

4.  That  everybody  is  suffering  because  of  the  “slipshod  and 
wasteful  methods  of  the  American  farmer.” 

5.  That  we  should  now  copy  the  intensive  methods  of  older 
countries  and  that  more  capital  is  needed  for  the  best  results. 

As  a matter  of  fact,  there  is  truth  in  all  these  propositions,  but 
it  is  mixed  with  an  amount  of  error  and  of  misconception  concerning 
the  economic  laws  governing  agricultural  production  that  is  dangerous 
both  to  the  farmer  and  to  the  consumer. 

Cheap  Food  and  Low  Yields 

We  are  just  emerging  from  a pioneer  agriculture,  in  which  land 
had  little  value,  because  it  was  abundant,  and  labor  was  the  principal 
element  in  the  cost  of  production.  If  the  American  farmer  has  been 
wasteful  of  fertility  it  is  because  he  has  had  it  to  waste,  but  he  has 
been  exceedingly  economical  of  labor,  which  was  costly,  and  has  pro- 
duced the  cheapest  food  the  world  has  ever  eaten,  or  ever  will  eat, 
tho  the  yields  per  acre  have  been  little  more  than  half  those  of  older 
countries.  Our  question  has  been  not  How  much  per  acre  but  how 
much  per  man , and  in  this  the  American  farmer  has  been  right  even 
tho  his  average  yields  have  been  low. 

We  are,  however,  approaching  old-country  conditions.  Land  is 
growing  scarce,  and  therefore  costly,  so  that  elements  other  than 


3 


4 


labor  have  begun  to  enter  into  the  cost  of  production  and  food  is 

necessarily  higher. 

Under  pioneer  conditions  the  highest  yields  have  been  the  most 
profitable  because  they  were  the  result,  not  of  expensive  methods  of 
farming,  but  of  especially  rich  spots  of  land  or  of  favorable  seasons, 
costing  nothing  extra  beyond  the  increased  expense  of  harvesting. 
It  is  still  true  that  high  yields  are  profitable  if  they  can  be  cheaply 
produced,  but  the  general  principle  is  that  the  higher  the  yield  the 
greater  the  cost,  not  only  per  acre,  but  per  bushel. 

This  natural  operation  of  the  economic  law  of  diminishing  returns 
in  farming  is  best  illustrated  by  an  experiment  begun  many  years  ago 
by  Lawes  and  Gilbert  at  Rothamsted,  England,  the  oldest  experiment 
station  in  the  world.  They  applied,  every  year  for  twelve  years,  dif- 
ferent amounts  of  complete  fertilizer  to  adjoining  fields  of  wheat, 
with  the  following  results: 


Fertilizer  applied1 

Av.  12  yrs. 

Increase 

Increase 
per  200  lbs. 

None 
200  lbs. 

18.4  bu. 

28.4  bu. 

10.0  bu. 

10.0  bu. 

400  lbs. 

36.4  bu. 

18.0  bu. 

8.0  bu. 

600  lbs. 

38.0  bu. 

19.6  bu. 

1.6  bu. 

By  this  we  see  (fourth  column)  that  as  an  average  of  the  twelve 
years  the  first  200  pounds  of  fertilizer  returned  10  bushels,  but  that 
a second  200  pounds  increased  the  yield  only  8 bushels  above  the 
first,  and  that  a third  200  pounds  returned  but  a little  over  a bushel 
and  a half  above  the  double  dose,  showing  that  increased  outlay  is 
not  always  followed  by  correspondingly  increased  yields. 

The  experiment  was  continued,  and  at  the  end  of  fifty-two  years 
the  results  were  as  follows : 


Fertilizer  applied1 
None 
200  lbs. 

400  lbs. 

600  lbs. 

These  figures  for 
diminishing  returns  in 


Av.  52  yrs.  Increase 

14.8  bu. 

23.9  bu.  9.1  bu. 

32.8  bu.  18.0  bu. 

37.1  bu.  22.3  bu. 

half  a century  show 
a modified  form.  Due 


Increase 
per  200  lbs. 

9.1  bu. 

8.9  bu. 

4-3  bu. 

the  same  principle  of 
to  soil  exhaustion,  the 


Nitrogenous  fertilizer  with  abundance  of  mixed  minerals. 


5 


yields  from  the  unfertilized  land  decreased  during  the  fifty-two  years. 
On  account  of  a few  bad  seasons,  the  average  effect  of  the  first  dose 
(200  pounds)  was  slightly  decreased.  Owing  to  the  accumulation  of 
residues  of  fertilizer,  the  effects  of  the  second  and  third  doses  were 
relatively  larger  than  for  the  twelve-year  period,  tho  subject  to  the 
same  law  of  diminishing  returns.  That  is  to  say,  the  last  dose  of 
fertilizer  was  less  than  half  as  effective  as  the  first;  or,  what  is  the 
same  thing,  the  last  increment  of  increase  cost  more  than  twice  as 
much  per  bushel  as  the  first. 

Prices  and  Yield 

In  the  more  intensified  agriculture  that  is  just  ahead  of  us,  the 
question  is,  therefore,  not  how  much  the  farmer  can  produce  per  acre, 
but  how  much  he  can  afford  to  produce.  His  yield  must  depend,  not 
mainly  upon  his  knowledge  of  production,  but  upon  the  price  of 
the  product. 

For  example,  in  the  tables  quoted,  each  200  pounds  of  fertilizer 
cost  $7.50.  With  wheat  at  a dollar  a bushel,  a little  computation  will 
show  that  both  the  single  and  the  double  applications  would  pay, 
but  that  the  triple  application  would  swallow  all  the  profits  and  more. 
At  eighty  cents  a bushel,  only  the  first  dose  would  make  money ; while 
at  fifty  cents  a bushel,  none  of  the  treatments  would  pay,  and  both 
the  farmer  and  the  public  would  have  to  be  contented  with  the  lower 
yields  from  untreated  land  until  such  time  as  the  consumer  was 
willing  to  pay  a higher  price  for  his  food.  In  this  way  is  yield  de- 
pendent upon  price,  and  it  is  the  natural  way  in  which  supply  adjusts 
itself  to  demand  as  expressed  in  price. 

Of  the  same  tenor  is  the  experience  of  the  University,  which  is 
producing  corn  yields  varying  from  26  bushels  per  acre  on  continu- 
ously unfertilized  land,  to  an  average  of  93  and  a maximum  of  120 
bushels  per  acre  on  land  which  is  excessively  fertilized.  It  is  making 
no  money  on  either  extreme : in  the  one,  because  the  yield  is  not  suffi- 
cient to  pay  the  labor ; in  the  other,  because  the  fertilizers  are  so  cost- 
ly as  to  swallow  all  the  profits.  The  problem  of  the  farmer,  therefore, 
is  to  determine  at  what  point  between  these  extreme  yields  he  must 
aim  to  fix  his  average  yield,  and  in  determining  this  point  he  must 
take  into  consideration  the  value  of  his  land,  the  cost  of  labor,  the 
cost  of  fertilizer,  and  the  probable  price  he  will  receive  for  his  product. 


6 


From  this  we  see  the  impossibility  of  “doubling  yields  without 
increased  expense,”  and  also  that  when  prices  drop,  the  income  of 
even  the  best  farmers  must  decline,  for  extreme  yields  are  profitable 
only  with  high  prices.  It  must  be  clear  that  we  cannot  recklessly 
increase  the  yield  per  acre. 

On  the  other  hand,  we  cannot  continue  the  old-time  wasteful 
methods  of  soil  exhaustion,  cheap  and  effective  tho  they  were  in  their 
day,  because  they  are  resulting  in  decreasing  yields  in  the  face  of 
increasing  demands.  If  our  declining  yields,  due  to  soil  exhaustion, 
are  to  be  arrested  and  turned  into  even  a slight  increase  to  meet  the 
growing  demands,  it  is  clear  that  new  methods  must  be  employed, 
but  the  object  must  be  a moderate  increase  in  yield  by  economic 
methods  and  not  extreme  yields,  which  are  bound  to  result  in  loss 
to  the  farmer  or  in  prohibitive  prices  for  food,  or  both. 

Our  farming  is  now  in  a transition  stage  between  the  “extensive 
agriculture”  of  the  pioneer,  in  which  fertility  is  disregarded  and  there 
is  no  investment  but  labor,  and  the  “intensive  agriculture”  of  old  and 
densely  populated  countries,  in  which  the  main  question  is  yield  per 
acre,  resulting  either  in  high  cost  of  food  or  in  poorly  paid  labor. 
(China  produces  the  most  per  acre  but  pays  its  laborers  the  least.) 

Our  present  yields  are  below  what  the  climate  and  the  general 
situation  ought  to  produce,  owing  mainly  to  certain  adverse  conditions 
that  can  be  cheaply  and  easily  corrected,  and  money  put  into  this 
channel  will  well  repay  the  investment  because  it  will  increase  the 
yield  without  being  subject  to  the  law  of  diminishing  returns.  This 
is  where  our  present  duty  and  opportunity  lie  in  establishing  the 
foundations  of  a permanent  agriculture.  It  must  be  remembered  that 
we  have  not  yet  reached  the  intensive  stage,  where  it  will  pay 
cither  the  producer  or  the  consumer  to  attempt  maximum  yields  on 
American  land. 

Rational  Procedure 

In  this  transitional  stage,  in  which  our  yields  are  kept  down  by 
certain  adverse  conditions,  the  first  step  in  a rational  procedure  is  the 
correction  of  these  conditions  by  relatively  inexpensive  methods,  such 
as  the  use  of  lime  to  correct  acidity,  the  application  of  cheap  forms 
of  phosphorus  or  of  potassium  to  balance  fertility,  keeping  nitrogen 
always  the  limiting  element,  a better  adjustment  of  crops  to  soil  and 


7 


to  locality,  and  the  organization  of  more  economic  systems  of  farming, 
with  special  attention  to  live  stock,  the  distribution  of  labor,  and  the 
investment  of  capital.  All  the  advice  given  out  by  the  University 
of  Illinois  at  this  juncture  is  based  upon  this  principle,  because  invest- 
ments of  this  character,  whether  of  labor  or  of  capital,  are  certain  to 
increase  the  yield  with  relatively  slight  expense.  Having  done  what 
we  can  in  this  way,  we  may  await  with  confidence  the  intensive  stage, 
the  coming  of  which  will  be  characterized  by  a permanent  rise  in  prices. 

The  Handicap  of  the  Small  Farmer 

The  greatest  hazard  in  farming  is  the  season,  against  which  im- 
proved methods  are  only  a partial  protection.  The  farmer  with  little 
or  no  capital  must  confine  himself  to  practices  that  will  pay  every 
year , while  the  man  with  considerable  means  is  free  to  follow  those 
more  expensive  methods  which  pay  best  in  the  long  run,  even  tho  an 
adverse  season  now  and  then  might  show  a loss.  This  lack  of  capital 
cannot  be  remedied  by  short-time  loans  to  the  small  farmer,  nor  by 
loans  of  any  kind  to  the  farmer  whose  yields  are  limited  by  bad  cultF 
vation  or  to  the  one  incapable  of  managing  his  business  upon  the 
more  complex  and,  to  him,  more  dangerous  basis  that  will  be  at  once 
established  when  he  attempts  to  increase  his  yield  by  a larger  use 
of  capital. 

Farming  on  Credit 

It  is  commonly  said  that  not  enough  floating  capital  is  invested 
upon  American  farms,  and  it  is  doubtless  true,  but  it  must  be  remem- 
bered, both  in  extending  credit  and  in  making  loans,  that  the  American 
farmer  has  had  little  experience  in  handling  capital.  Manifestly, 
therefore,  when  he  borrows,  both  he  and  the  lender  must  be  satisfied 
that  the  loan  will  be  judiciously  used,  or  it  may  result  disastrously. 

The  student  of  agriculture  cannot  fail  to  see  the  danger  of  over- 
capitalization  in  attempts  to  secure  abnormally  high  yields,  a danger 
which  increases  as  the  practice  spreads,  for  altho  one  man  may  safely 
increase  his  yields  without  depressing  the  price,  if  all  farmers  were 
to  follow  his  example  the  price  would  drop  and  all  would  lose  money. 
Under  this  principle  a few  farmers  will  always  be  practicing  methods 
not  practicable  for  the  mass.  By  this  we  see  that  in  the  long  run  the 
chief  results  of  better  farming  will  be  realized  by  the  consumer  rather 


UNIVERSin  of  ILLINOIS-URBAN* 


177  4 M 4 


8 


than  by  the  farmer.  All  attempts  to  hold  ^ 


purpose  of  raising  the  price  are  as  unavailing  as  they  are  unwarranted. 
The  world  wants  food,  and  the  principles  herein  presented  are  the 
ones  that  will  guarantee  its  cheapest  production. 


It  is  relatively  safe,  therefore,  to  invest  capital  freely  upon  the 
farm  for  the  sake  of  correcting  abnormal  conditions  and  raising  the 
yield  to  the  normal,  but  beyond  that  point  it  will  pay  only  when  prices 
rise.  As  we  approach  this  point  by  reason  of  increased  population 
with  its  increased  demands,  either  the  cost  of  food  must  rise  or  labor 
be  greatly  degraded,  else  the  farmer  cannot  afford  to  produce  the 
increase  needed.  As  population  increases,  therefore,  but  one  alternar 
tive  will  present  itself — each  human  unit  must  become  more  efficient 
in  production,  or  it  must  deny  itself  much  of  what  is  now  enjoyed. 

This  circular  is  issued  not  as  an  argument  for  poor  farming  nor 
for  the  continuance  of  old-time  methods,  but  to  point  out  that  we  are 
not  to  step  at  once  and  blindly  into  expensive  forms  of  intensive  agri- 
culture. We  should  ascertain  and  practice  those  relatively  inexpensive 
methods  belonging  to  a transition  stage  that  correct  bad  conditions 
and  thereby  considerably  increase  the  yield  without  seriously  raising 
the  price,  so  that  the  results  may  be  profitable  alike  to  the  farmer  and 
to  the  public  whom  he  serves.  In  this  good  work  there  is  no  danger 
of  doing  too  much. 


Conclusion 


